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The Endowment Diary

The Endowment Diary

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The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Monday, March 03, 2008

Call For Evidence

Call For Evidence

In a move designed to ensure that another endowment related scandal does not occur, the Treasury Select Committee has called for written evidence as part of its inquiry into the orphan assets (Inherited Estate) held by life companies' with-profits endowment funds.

The call comes as concerns are raised over the actions of AXA, Prudential and Norwich Union as they attempt to re attribute their Inherited Estates.

These assets are worth billions of pounds yet, despite these funds being contributed by policyholders, some insurance companies have been using a portion of them for the benefit of their shareholders rather than policyholders.

In 2000 AXA paid out a paltry 31% of its inherited estate to policyholders, this gave rise to the FSA to creating the post of Policyholder Advocate.

Claire Spottiswoode, Policy Advocate, is currently acting on behalf of Norwich Union policyholders.

Ms Spottiswoode, who is not happy with the current plans by Norwich Union (eg to pay the policyholders their share over 3 years), has welcomed the call for evidence:

"Foremost among the issues will be the way in which the FSA allows companies to subsidise the writing of new business, which has the effect in a re attribution of transferring value from the estate directly to shareholders.

Further, the way in which the FSA allows companies to pay shareholder tax from the estate is costly to policyholders and requires explanation."

The committee would like to hear about the following areas:

The regulatory definition of the inherited estate in a with-profits fund.

The extent to which life assurance companies should be permitted to diminish inherited estate in order to subsidise corporate activity, including financing new business, making strategic investments, paying shareholder tax and paying the costs of compensation for mis-selling.

Whether allowing life assurance companies to use inherited estate to subsidise corporate activity has any adverse effects on competition.

The principles that should guide the division of inherited estates in 90:10 funds between policyholders and shareholders upon re attribution of the estate.

The appropriate sharing of inherited estate between current and future policyholders.

Whether policyholders' reasonable expectations of distributions from inherited estate should be zero or have a positive value.

Whether any distribution of benefits from the inherited estate should be made in a single payment or phased over several years.

The role and responsibilities of the Policyholder Advocate.

The framework for negotiation between the Policyholder Advocate and the life assurance companies.

The role of the with-profits committees of life assurance companies.

The approach of the Financial Services Authority to the issue of inherited estate.